Cuomo Turns To Hedge Fund And It Pays Off

Published: October 6, 2006

Two years ago, Andrew M. Cuomo put more than half of his campaign treasury into a hedge fund, making him one of the few New York politicians to invest campaign money in anything riskier than a sure bet.

In the case of Mr. Cuomo, the Democratic candidate for attorney general, the hedge fund was directed by one of his largest financial backers, a man who also handled Mr. Cuomo's personal money. The investment of $750,000 turned out to be all upside, with a return of nearly 20 percent after one year.

Mr. Cuomo's experience is a rarity in an arena where most campaigns, focused on their short-term needs, keep their money in conservative vehicles like savings accounts.

Investing campaign money in hedge funds also presents special concerns, government watchdogs say, because of their unregulated nature. Given the secrecy of such funds, who can say, they ask, whether a high return reflects a smart bet or simply a campaign supporter's efforts to evade contribution limits by padding the return of a favored campaign account.

''There's no way to know what's going on with a hedge fund,'' said Fred Wertheimer, president of Democracy 21, a Washington-based nonpartisan group that works to reduce the influence of money in politics. ''The candidate knows, and the hedge fund manager knows, but the public doesn't.''

In Mr. Cuomo's case, one of the hedge fund's three founders, his wife and officers of the fund -- known as EnTrust Capital Partners L.P. -- have donated nearly $175,000 to the last two Cuomo campaigns.

Mr. Cuomo's campaign said that the EnTrust fund was ''low volatility,'' adding that Mr. Cuomo had not received any guarantee of positive returns.

Wendy Katz, a spokeswoman for the campaign, wrote in an e-mail message to The New York Times, ''The rationale for investing campaign funds in a hedge fund is the same rationale employed by nonprofits, universities (for example, Harvard and Columbia), state and city public pension funds and charitable foundations for investing in hedge funds, which is to grow the asset and maximize returns.''

The Cuomo campaign, however, was given special consideration by EnTrust. It gave the campaign one of 35 slots in the fund that federal regulations allow for investors who do not meet minimum total asset requirements, which in the case of the campaign would generally be $5 million. EnTrust also waived its usual minimum investment requirement of $1 million.

There are no city, state or federal election laws or regulations that prevent candidates from investing campaign money with hedge funds or other speculative vehicles, according to regulatory agencies.

Several campaign finance experts said in interviews that they had never heard of a campaign that had invested in a hedge fund before. But in the go-go stock market of the late 1990's, a few state and national politicians did dip campaign funds into other speculative investments, like stocks and mutual funds.

The rarity of taking such risks is evident in New York State's campaign finance database. Only seven candidates or committees have declared losses on campaign fund investments in any reporting period since 1999.

''You want to make sure it's available in case you need it in the future,'' Bob Farmer, who served as national treasurer for four presidential campaigns and the Democratic National Committee, said of campaign money.

Among the New York politicians who have invested in securities is State Senator George D. Maziarz, an upstate Republican whose campaign lost $63,815 in the second half of 2001 on stock brokerage investments.

State Senator Thomas W. Libous, a Republican from Binghamton, has done better, earning $125,300 since 1999 on investments in mutual funds.

Mr. Cuomo also fared well. In March 2004, his campaign invested $750,000 of the roughly $1.2 million it had in its treasury with EnTrust, according to Ms. Katz. By the time the campaign closed the account, in February 2005, it had recorded gains of $143,047, a gross return of 19 percent during a period when the Dow Jones industrial average rose less than 1 percent. Management fees of $28,517 cut into the campaign's gains.

One of the three partners who own EnTrust, Gregg S. Hymowitz, said the Cuomo campaign had put its money into a conservative hedge fund, one that invests in stocks, seeks to preserve capital and has rarely suffered losses.

Mr. Cuomo has also invested personally with EnTrust. His 2004 tax filings show a $174,973 gain from money placed in the company's Capital Diversified Fund, according to The Associated Press. Ms. Katz declined to address whether EnTrust granted Mr. Cuomo's personal investments the same considerations as it did to his campaign money.

Mr. Hymowitz and his wife, Deborah, have donated to Mr. Cuomo's campaigns, contributing $133,578 to his two runs for public office as individuals or through entities that Mr. Hymowitz controls. Other EnTrust officials have given the Cuomo campaign another $40,000.

''I have known Andrew as a close personal friend for over five years, and believe that he would have made a great governor and strongly believe he will be a great attorney general,'' Mr. Hymowitz wrote in an e-mail message to The Times.